China’s 1.38 billion increasingly wealthy citizens present an opportunity for large global cosmetics companies like Unilever, L’Oreal, and Johnson & Johnson. With their headquarters in the US and Europe and product lines that cater to Western tastes, these conglomerates increasingly see acquisitions as a shortcut into to Chinese market.
“Global beauty brands have built a base in China over the past two decades, but as China has grown into the world’s second-largest economy, they see even more potential,” said Holly Kim, head of MeasureChina’s data business. “China continues to grow at high single-digit rates, so the benefits of increased market share are obvious.”
Chinese laws on foreign ownership of companies make it difficult and risky for multinationals to acquire Chinese companies directly. This has pushed them to look at companies in Korea and Japan that already have popular products for Asian skin types and tones, and a degree of brand loyalty in China.
L’Oreal, for example, may already earn as much of 20% of its revenue from sales in China and to Chinese tourists. Exact numbers are difficult to pin down. Recent acquisitions of Korean companies Dr. Jart+, which we covered before, and 3CE, covered below, give them greater market access.
AHC x Unilever
Unilever’s acquisition of AHC gives us some insight into how global companies view opportunities in Asia. Unilever paid nearly $3 billion for AHC’s parent company Carver Korea, at a time when the company generated about 20% of its revenue in China, with high year-on-year growth. That purchase price was more than six times Carver’s annual revenue in 2016.
Experts in Korea attribute AHC’s exponential growth to successful home shopping sales in Korea and word-of-mouth in China, spread by the country’s influencer/sellers, locally known as daigou. They especially hyped AHC’s “Eye Cream for Face”, which offers high quality at an affordable price.
3CE x L’Oreal
3CE launched in 2008 when Style Nanda, a popular Korean e-commerce portal for clothing, launched its first cosmetics line. As Style Nanda grew in popularity, so did 3CE. Every new product category 3CE launched went viral in both Korea and China. The brand grew into a comprehensive line of color cosmetics with a range of hues and designs that stretched beyond the creativity of other companies.
L’Oreal acquired a 100% stake in 3CE in May 2018 for about $500 million (KRW 600 billion). Interestingly, 3CE still does not appear as part of L’Oreal’s brand portfolio on its website. L’Oreal may be waiting to do a bigger launch once the products are fully adapted for the Chinese market.
Ci:z Holdings x Johnson&Johnson
When Johnson & Johnson acquired a 100% stake in Japan’s Ci:z Holdings, parent company to Dr.Ci.Labo, the announcement was couched in typical corporate speak. J&J’s chairman announced that he looked forward to bringing “efficacious, science-backed skincare products to our health and beauty consumers around the world.”
While Dr.Ci.Labo controls about 40% of Japan’s medical cosmetics market, that fact cannot fully explain why J&J paid $2 billion for it at the start of 2019. It appears that the brand’s existing popularity in China, along with its current growth trajectory made it an irresistible buy. The premium purchase price may also indicate that J&J plans to expand its skincare product line, which trails behind personal care and home care products.